You boys like Mexico?

Question

Investment Info:

Condo buy & hold investment.

Purchase price: $271,627

Cash invested: $109,353

Beachfront condo in Puerto Penasco, Sonora, Mexico. Beautiful 2b/2b with a view of the ocean and beachfront amenities including tennis court, BBQ area, two pools, a swim up bar, two hot tubs, palapas on the beach, beach volley ball, a gym and a delicious restaurante.

What made you interested in investing in this type of deal?

Can use it as a vacation get-away along with it being a vacation rental that cash flows. It's on the beach of the beautiful Sonoran coast of the Sea of Cortez.

How did you finance this deal?

My dad, brother and I combined our cash for $103,000 towards the purchase and closing amounts of $271,000. The other $168,000 we borrowed from my mom/dad's ex-wife. She did us a huge favor and took a second mortgage on her rental property in Phoenix that she owned free and clear and let us use the money and we just make the payments to the bank.

How did you add value to the deal?

I took care of all the legalities of owning a property in Mexico. I take care of the rentals and the monthly finances.

What was the outcome?

It has been a cash flowing property except for the summer months of 2020 because of the 'rona. We were able to do a forbearance on the loan payments since it is technically a mortgage in the USA. This has saved us from the $1,003 per month payments for nearly a year now.

Lessons learned? Challenges?

It is easier to buy a property in Mexico if each person that will be on the deed already has their permanent Mexican residency. Otherwise you have to create an LLC in the USA and that will hold the title and it takes longer to for the purchase and closing. Also, if each person has their Mexican green card you can open a bank account in Mexico and potentially apply for a loan in Mexico if you don't have all the cash for the purchase. You cannot obtain a loan in the US to use in Mexico.

Mike Lambert · Answer

@Troy Huczel

Congrats for your purchase. Hope you continue to do well with it. I don't see any reasons why you wouldn't.

Just a rectification about owning property in Mexico. The fact that you're a resident or not doesn't matter. It's whether you are a citizen or not that matters but then, it doesn't really.

Anybody can buy a property in Mexico outside the forbidden zone in their own name. The forbidden zone includes any area that's within 31 miles of international borders or within 62 miles from the coast So Puerto Penasco is obviously in it. In the forbidden zone, foreigners are not allowed to own property in their own name because property can only be owned by Mexicans or Mexican entities. Foreigners can then either own through a bank trust (fideicomiso) or a Mexican corporation.

I've never heard of owning Mexican property through a US LLC and that would defeat the purpose of the Mexican ownership. But maybe the property is held indirectly by your US LLC through a trust or a Mexican corporation. Or maybe Puerto Penasco isn't actually in the forbidden zone because maybe the Sea of Cortez is considered as an "inner" sea. If that was the case, you could just own in your own name though.

Troy Huczel · Answer

The residency was extremely easy. Set an appointment with the Mexican consulate right here in Phoenix. It's about $37 for the visa. You stop at the international border and have the Mexican official stamp the visa. Then in Puerto Penasco you stop in the immigration office and they process the rest of the paperwork and you pay about $250 using pesos. Then you return to their office 2 weeks later and you grab your green card.

Mike Lambert · Answer

@Troy Huczel

It looks like Puerto Penasco falls in the forbidden zone indeed. Therefore, resident or not, Americans (and I believe American entities) aren't allowed yo own property there in their own name directly. Ownership is allowed but, again, it'd have to be through a bank trust or a Mexican corporation.

Contrary to some urban legends, you don't run the risk of having your property expropriated in Mexico more than anywhere else if you hold legal title on the property. Expropriations have happened in Mexico because their victimes didn't have a clear title. No need to panic but if the property would be held directly by an American LLC, you might want to check whether that it's indeed legit.

@Mark Jones

The bank trust yearly maintenance fee is more around $600, which is not really an issue because the total property holding costs in Mexico are very low, especially compared to the potentially very high rental income. There is a larger one-off bank trust set up fee but it is included in the closing costs.

You could put a US LLC between you and the bank trust but if the purpose of that is asset protection, it might not be necessary. Indeed, with the bank trust, it's the bank's name that's on the deed so potential creditors can't find you're the owner unless you tell them.

Mark Jones · Answer

I've been researching this very thing for a purchase in Mexico.  The real estate lawyer in Mexico said we can buy property in the forbidden zone as @Mike Lambert described.  He said I would need a trust, which he would establish in Mexico, cost $200-300US a year to maintain, and I would would still use a US LLC.  Here he is talking about it on youtube.  The interviewer is awful, but Spencer is informative.

Troy Huczel · Answer

Hi Mike,

I own the condo with my brother and our father. Americans cannot own beachfront property for some reason in the area. I don't recall which odd reason but when we were going through the purchase process we were told all of us would need to have Mexican residency if we were to be on the deed, or it would have to be in only my name since I was the only person to have Mexican residency, or the third option was to do an LLC. Next time I buy a place down there or sell this one I will certainly be asking more questions.

Brett Tvenge · Answer

@Troy Huczel Nicely done!!

Brandon Goldsmith · Answer

Congrats on the purchase! How was the difficulty of the residency process overall? @Troy Huczel

Stephen Brown · Answer

Me encanta Mexico

You boys like Mexico?

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